The Reverse Mortgage Blog - by Dennis Haber Esq.

Can the SAFE Act Which Regulates the Mortgage and Reverse Mortgage Industry Originators Be Totally Unsafe?

I have submitted to the onerous requirements of the act because I love the reverse mortgage industry and wish to remain. Others have run away from it. Some have moved from the industry into other jobs. However, the time is ripe to start a dialogue on a topic that has already garnered much debate within and without the reverse mortgage industry.

The Safe Act was passed by Congress and signed into law by President Bush as part of the Housing & Economic Recovery act of 2008. Once and for all it sought to correct the deception, fraud, bilking and misrepresentation that some believed was indigenous to the mortgage origination industry.

If this law applied equally to mortgage broker, mortgage banker and to depository institution originators, I would have little to say about the law. However, as it now stands, the law is inequitable. It makes little sense. And ultimately does nothing to protect future borrowers from the new scam artists that penetrate the mortgage industry. The licensing requirements do not apply to depository institutions.

The aforementioned law illustrates the pristine example of the power of lobbying dollars at work. Before we proceed any further, we have to agree upon one truth: that no matter how or where one obtains a loan the process remains the same. To wit: Whether one originates a loan from a mortgage broker, a mortgage banker or from a depository institution, each “entity” performs the identical task. Let me be clear about this. The origination function of a mortgage broker, mortgage banker and depository institution is identical.  

However, the treatment that the law provides is entirely disparate. It seems to me that today the public is better off working with a mortgage broker or a mortgage  banker because they are now required to pass a mandated challenging test on federal and state law; required to be licensed; required to take 20 hours of pre-licensing courses and 11 hours of continuing education classes each year; undergo a criminal background check and fingerprinting. The originator of a depository institution has hidden behind the skirt of their company’s lobbyist, who convinced the legislators that depository institutions are better and therefore the public does not need to be protected from them.

If truth be told, the reason the mortgage brokers and the mortgage bankers were left holding the proverbial loser’s prize, was because they had the weaker lobbying efforts in Washington. The secondary reason is that the leadership of each organization refused to unite to create a united front for the purpose of explaining to a confused congress that originating a loan is the same whether it is done by a mortgage banker, mortgage broker or by a bank.

The penultimate result of this feckless piece of legislation was to naturally create another layer of bureaucracy. Washington has this process down to a science. However, the final result could lead to the 2nd destruction of the mortgage industry.

Here’s a question: Why would any originator getting into the business want to work for a mortgage banker or mortgage broker? The answer is:  he/she wouldn’t. Here’s another question: What percentage of total loans historically have been originated by the broker and banker? The answer is about 45-65%. How about this question: How are banks going to take over the origination volume from these entities? The answer is that they can’t.

The Nationwide Mortgage Licensing System that tracks the licensing of originators may one day in the future have relatively few people to oversee. Once again, we could have an originating system with entirely no oversight. So in other words the system would have done a full 360% to wind up where it was before the SAFE Act was signed into law.

 And in the meantime, people will not be able to get loans because there will not be enough good people to service the overwhelming demand. If you do not think that this can happen consider this: Those that do not want to be subject to testing will work for banks or leave the industry; those that have something in their background they do not want disclosed will work for banks and/or leave the industry. Those that cater to and service a certain foreign clientele, will work for banks and/or leave the industry.  It has come to my attention that some who are not fluent in English are not taking the exam because each is convinced that a passing grade is not possible. Many people believe that the exam is meaningless. To wit: No test can test for character or competence. Yet regulators believe that can create an egalitarian world.

The biggest folly regarding the test is that it is not a test that tests for reverse mortgage acumen. In fact, this exam has nothing to do with reverse mortgages. So all reverse mortgage originators who have never originated in the “forward world” are required to pass a test on a subject they know NOTHING ABOUT; ABOUT TOPICS THAT DO NOT EXIST IN THE REVERSE MORTGAGE WORLD. It is like asking a brain surgeon to take an exam on podiatry. It is like asking a plumber to take an exam on electrical concepts. What if every legislator in Congress was asked to pass an exam on etiquette before they could take their seat. Well, everyone knows that answer. (That was a light-hearted joke. However, the SAFE Act is nothing to joke about).

I have taken both parts of the exam and passed. The exam questions are not designed to test knowledge. The questions are a mind field. The test taker first has to figure out the basis of the question. Sometimes the difference between the right and wrong answer is separated by the proverbial shade of gray.  I think that it is important for test takers to see what the right answers are to the answers marked incorrect.

Many people within the mortgage industry want to make things better.  I do not think layers of laws and regulations are the answer. At the beginning of 2010, over 50,000 new laws became effective. There are already a couple of million laws on the books. However, It seems to me that (every) industry has to start stepping up to the plate and be held accountable to preclude onerous governmental intervention. Many say it is too late for the mortgage and reverse mortgage industries. If the government is not careful, for the reasons mentioned above, this great country could see the coming of the second destruction of the mortgage industry. There is one origination industry-not three. To get the most out of the law, it must be revised to acknowledge this fact.

 

Reverse mortgages wrongly attacked again-The age of instant communication makes "attacking" too easy

Sadly,the concomitant despair that sometimes accompanies old age can also impair what one sees. In an article appearing in thepeoplesvoice.org, on March  16, Mary Brill took aim at Congress (missed target), reverse mortgages (missed target), payday loans ( missed target), discounted judgments (missed target). Her beef is that Congress has lost control.  While I agree that essential oversight has been lacking, the article is replete with metaphorical depictions and is entirely lacking in substance.   

Ms Brill aims her desultory vitriol at the reverse mortgage program by decrying that lenders will own the home and these same lenders cannot wait for their borrowers to die. The quicker they die, she reasons, the more money the lender makes.

These remarks indicate ignorance of the highest order. This is yet another example of intractable  misconceptions gaining the upper-hand. Even in the face of overwhelming evidence to the contrary, people will believe what they want to believe.  And what people believe to be true is more important than what is really true.

HERE WE GO AGAIN. RESPONDING TO INACCURATE HECM REVERSE MORTGAGE INFORMATION COULD BECOME A FULL TIME JOB.

The article posted on line on 2/15/10 entitled “What’s Wrong With Reverse Mortgage’s” was brought to my attention by Mario Martirano, my colleague and the founder and president of Agency For Consumer Equity.

The introduction to the article starts off in a rather benign manner.  However, prior experience has shown us that such benign appearing intros often wind up as anything but. The reader is initially admonished not to view these red flags as negative aspects of reverse mortgages. Rather, we are told, “that when big money is involved there are a few people out there who might get a little greedy now and then.”  Even though the article is suppose to be about reverse mortgages, I was thinking that it could also be about an inheritance, or the sale of a major asset like a home, or managing investments. It is easy to criticize in generalities. At first glance, general criticism has the appearance of gravitas. Upon further reflection, one realizes that nothing is actually being said.

The reverse mortgage industry is particularly sensitive to the decision making process of the client. It encourages family and professional involvement.  Understanding options is another important piece of the puzzle. The author when making these kinds of suggestions seems to believe that new ground has been broken.

The first of the red flags, while hitting the outer ring of the target, comes closest to making an appropriate statement. To wit: Understanding the particulars of the reverse mortgage takes some effort.  Therefore, the article could have stated that the most important decision made by borrowers is who they hire as the loan officer. It is the loan officer that will impart a great deal of the information to the borrower and to the family; who will be with the family during and after the loan is closed. While red flag #1 suggests that second opinions be obtained and alternatives reviewed, it is also important to suggest that only those who know about the product are qualified to provide opinions. Many professionals and family members and friends just restate the misinformation and misconceptions that keep making the rounds.

The ninth red flag, although poorly written, also contains a modicum of truth. I comment on it later in this piece.

The balance of the red flags herein presented are either couched as scare tactics, or are just plain wrong or the problem complained of does not exist.  The problem with articles of this nature is that it frightens away those prospective borrowers who do not know better. This is the biggest tragedy of all.

Red Flag #2 talks about the high cost of the reverse mortgage and that the fees should be spelled out. It ends with an admonishment to consult a lawyer, or accountant or other trusted adviser. Before referring you back to #1, it is important to note that the fees have always been spelled out. The new GFE required by Regulation X, requires that the fees be spelled out in a new way and that the terms of the loan be clearly provided as well. The author is making much ado about nothing.

Red Flag #3 grouses over the fact that the true costs of the loan and home appreciation cannot be predicted. The Total Annual Loan Cost calculation is an accurate predictor of the interest rate needed to produce the amount due as determined by the way the money is taken. The industry should apologize to the author because it does not possess that ultimate crystal ball in determining home appreciation. Unlike some realtors, we never said that home values only rise.

Red Flag #4 uses the metaphor of tight lipped lenders and sleaze ball lenders who “work themselves into the deal to gain a large percentage of the property’s appreciation”. It ends with, “ask your lender if they are attempting to gain any percentage of the appreciation as part of their profit”. This problem does not exist. Equity appreciation/sharing have not existed for ten years. Again, much ado about nothing.

Red Flag #5 Speaks of forcing borrowers to buy additional financial products. The Housing & Economic Recovery Act 2008 put a stop to this practice. A few miscreants did take advantage of their elderly clients. This type of activity contravenes the code of conduct NRMLA members must follow.  The sins and activities of a veritable handful do not reflect the ethos of this industry.

Red Flag #6. Flat out states that “artificially inflated fees raise the cost to the borrower and deflate consumer benefits fast”. I have no idea what this means. There are no artificially inflated fees.

Red Flag #7. Suggests that the lenders and the HUD counselors work together and that there is an inherent conflict of interest. “Unfortunately the government still allows this practice. Your tax advisor doesn’t work for the IRS does he?” One shouldn’t respond to such ignorance. However, Mortgagee Letter 2009-10 states that “a lender may not contact a counselor or counseling agency……”

Red Flag #8 states, “Borrowers should not pay a referral fee for an agent just for the privilege of introducing you to a lender. That fee has been as much as 10% of the loan amount in some cases….”The ignorance grows as we proceed through the list.

Red Flag #9. Although poorly written, does make some sense. The key point here is that one should hire a reverse mortgage originator by getting referrals from family, friends or through professionals. Privacy laws will make it difficult to obtain actual references.

Red Flag #10. Understates the protection that is inherent in the program. The FHA loans are insured by HUD, and the rules are created to protect eligible borrowers.

Red Flag #11. Talks about pertinent information being withheld. One of the reasons that the paperwork is so voluminous is because of the many disclosures that are required.  You can’t have it both ways. RF #1 states there is complicated paperwork. This occurs because of the degree of disclosure protection that is built into the program.

Red Flag #12.  As to this section, I am not sure whether anything of value is being said. At best, the obvious is being restated. It looks like the author is running out of things to talk about.

Red Flag #13. In a number of places the author brings up the fact that there are alternatives to reverse mortgages. It is once again noted in this section.  The industry is quite aware of the plethora of alternatives that do in fact exist. The current economic climate, in most of the cases, makes these alternatives ineffective.

The author concludes with the denunciation of lenders and suggests that a nexus exists between elder abuse and lenders “who have no ethics”. The specious remarks come to an end after noting that these lenders need to be punished.

Ignorance is defined as the state of lacking knowledge. When this state persists for an extended period, (without reasonable abatement efforts being made), such ignorance becomes harmful as it masquerades as truth.  In a civil society words have become the weapon of choice. This weapon has the power to hurt a lot of people. This is why industry reaction to these articles is necessary.